Are Unsecured Credit Cards Available After Bankruptcy ?
Tuesday, January 22nd, 2008 Subscribe To Our Feed
Filing for bankruptcy should really be seen as a last resort, however for many people it is an option that they have to take to get their financial affairs back into order. And whilst a person declaring bankruptcy might be viewed less harshly today than in previous times, financial institutions still take a dim view of giving credit to such a person. This can range from the standard loan, mortgage or credit card. This article will discuss getting unsecured credit cards after bankruptcy. It will cover some of the tricks that credit card companies do to attract people and give you advice on selecting the best card.
First up, what is the difference between a secured and unsecured credit card ? Unsecured cards are the most popular type of credit card because they are effectively free money for a month (or the time period stated in the terms where you have to make a payment towards the debt). These are generally harder to get (despite the number of pre-approved credit card applications that come into your letter box each month) than secured credit cards. Secured credit cards are secured (for the financial institution) by a bank account that you have opened. The bank account has to have a certain amount of money in it before the credit card can be used. This amount is generally the same amount as the card’s limit. If the balance in bank account drops below this limit the card will fail the next time to try to use it.
So there is more risk to the financial institution with an unsecured credit card and explains why many don’t offer this type of credit to people that have filed bankruptcy. However some companies do make these offers available but they obviously charge for the privilege.
Obtaining an unsecured credit card after bankruptcy will have a number of dangers associated with it. For one, the interest rate will be a lot higher. Look around for the best rate or assess whether the rate will make it difficult to service the card before proceeding.
The fees for having such a card are often higher than for non bankrupts. Some of these fees can be really bad. For instance there could be a monthly fee that is 50% of the credit limit. Other fees could be added, such as an annual fee for something or other. This might take the fees you pay up to 70% of your credit limit. This can really mount up and make the card virtually useless if the credit limit is low to begin with. Note that unsecured credit cards for bankrupts will start with a low credit limit.
Other conditions might be fees or charges applied if there is no payment made by the card holder every month. The only advice for this is to read the small print carefully before you sign up for a card. Or ask the person you are dealing with to tell you about all the fees and charges. If you are paying over 50% of the credit limit each month for such a card you may want to look for other alternatives.
An advantage of having a credit card after bankruptcy is that you can improve you credit rating if you pay it off regularly. Improving your credit rating can lead to getting a better deal on another credit card or other form of credit.
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